Things aren't perfect in mortgage banking, but the industry has come a long way from where it was in 2023, according to members of a trade group's economic and research team.
Interest rates' retreat from year-ago levels has lowered at least one of the affordability hurdles for some homeowners, and new buyer demand remains high, Mike Fratantoni, chief economist of the Mortgage Bankers Association, told attendees at the group's annual conference in Denver.
"We have 50 million people between 30 and 40 in this country right now on the cusp of prime, first-time homebuying. So they're ready. The demand is there. We've just got to find the way to serve them, given the challenges that they're facing," Fratantoni said.
The return to profitability that the average mortgage banker saw in the second quarter persisted into the third, according to early estimates by Marina Walsh, vice president of industry analysis, based on reporting from a limited number of companies.
The fourth quarter might be a little more challenging given mortgage rates haven't fallen as much lately, but so long as they remain lower than 2023's and stresses on loan performance don't go too far, next spring could be one of the best homebuying seasons seen in a while.
"We are in a much better place now than we're where we were a year ago," Walsh said.
She anticipated there will be tighter gain on sale margins for loans, making expense reductions necessary, but not to the degree seen in 2023 when the
"I don't think we'll see even fewer mortgage applications, refi or purchase, this year relative to next year. If anything, we're going to see more," First American Chief Economist Mark Fleming, said in an interview at the conference.
"I would caveat that and say, 'more' being a very modest amount – more from a very low number. So, if you've recalibrated your staffing to the current capacity, then you're okay, but I think… there is some suspicion that there is excess capacity even still," he said.
The MBA is forecasting an industry recovery that starts with $1.8 trillion in mortgage originations for 2024, up slightly from a recently revised $1.4 trillion in 2023. By 2025, projections put the annual number at $2.3 trillion, followed by $2.4 trillion in 2025 and $2.5 trillion the following year.
The forecast for originations in units, a figure of interest to operations professionals in the industry, is about 5 million loans for 2024, 6.5 million in 2025, and 6.7 million the two following years, according to Joel Kan, vice president and deputy chief economist at the MBA.
"To put it into some perspective, between 2010 and 2019 we were averaging about 7.5 million, so we're still below that," he said.
All origination estimates are based on what happens to the 30-year fixed mortgage rates.
The MBA currently forecasts it will be at a steady level around 6% for a while, not low enough to expose the many coupons with lower rates to refinancing incentives but marking a relative improvement.
"It certainly is a whole lot better than the 7% and 8% rates that we had at the peak the last year or two," Fratantoni said.
Potential changes in the outlook for interest rates, the election's outcome,
The MBA anticipates that because there's been some weakness in economic indicators globally there's likely to be some upward pressure on the U.S. unemployment rate that's been around 4% but still historically low.
Delinquencies, which also have risen a little but are still relatively meager compared to how high they've gotten in crises like the pandemic and Great Recession, tend to be correlated with unemployment.
There also have been signs of consumer indebtedness related to other types of financings like auto loans and credit cards increasing, which can be a harbinger of pressure coming to mortgage performance too.
That's a risk to servicing as increased distress tends to raise its costs. In 2023, the servicing expense for a nonperforming loan was $1,857, according to the MBA's recent
Policy changes can compound that risk, with many new ones related to loss mitigation still undergoing implementation that takes time. That makes it a challenge to apply technology like artificial intelligence in order to introduce efficiencies, Walsh said.
Potential shifts in banks' capital treatment for servicing rights that are being re-proposed and a separate measure set to start soon for nondepositories working with Ginnie Mae, also are policy wild cards.
"Maybe it will change after the election, depending upon the interest in following through on those things," Fleming said. Those could potentially make a difference in how profitable things are in terms of servicing, but I don't think it makes it completely unprofitable."
Broader election issues that are risks to the forecast include how either administration handles the deficit, and
"The odds of a 'red wave' have increased quite considerably, and that would potentially be putting upward pressure on rates," Fratantoni said, noting that
Adding to the deficit means more issuance of Treasury bonds, increasing their supply relative to demand and putting downward pressure on their prices. Rate-indicative bond yields move in opposition to their price, so they would go up in this circumstance.
A key question for the forecast when it comes to post-election policy is what, if anything, the next administration does about the shortage of housing inventory relative to demand, a lingering effect of the market contraction that occurred in the wake of the Great Financial Crisis' housing bust.
This should target new home creation because existing stock won't help an expanding populace that grows beyond its capacity, Fleming said.
"We have to solve the policy problems around supply and I don't mean the 'when is the existing homeowner wanting to sell his home again.' I mean literally, the physical stock of homes," said Fleming, noting that while markets have softened, most are still supply constrained.
During his conference presentation, Kan said, in the recent available-for-sale unit count did pick up a little in recent months but remains historically low.
"I think we're starting to see a little bit of loosening," he said.
